A NOTE ON THE POLITICAL ECONOMY OF INDEXATION

Utilizing three U. S. Senate votes on indexation, this article statistically examines the relationship between public spending tendencies of legislators and their votes on indexing the tax code. Heretofore, the public finance literature has argued that periodic discretionary tax cuts have offset past inflation-induced bracket creep. A problem with discerning whether discretionary tax cuts offset bracket creep, however, is that one’s conclusion is sensitive to the base year from which one indexes. Looking at public spending tendencies and voting patterns on indexation represents an alternative approach to the issue. If government naturally rebates inflation-induced revenue gains, support for or opposition to indexation would not be associated with senators ’ spending tendencies, since indexation per se would have no impact on the size of the funded budget. This study shows, however, that the more liberal are senatorial spending tendencies, the greater is the likelihood of opposition to indexation. During the last few years there have been votes in the U.S. ~~ ~ Senate on whether to index the federal income tax. This article uses three of these votes-1976, 1978, and 1981-to examine statistically the relationship between senators ’ votes and senators ’ public spending proclivities as measured by the sen-ators ’ scores on the National Taxpayer’s Union (NTU) spending index. This relationship is of interest to those in public finance because it sheds some light on the issue of whether inflation-induced bracket creep is a source of additional federal tax revenue. Although it is often asserted that the level of federal tax revenue is augmented by bracket creep, much of the public finance literature rejects this assertion, suggesting instead that periodic discretionary tax cuts offset inflation-induced bracket creep and obviate the relevance of formal indexation. ’